Shares of The Children’s Place Inc. (NASDAQ: PLCE) were down 6% in afternoon hours on Wednesday. The stock has gained 54% since the beginning of this year and 107% over the past 12 months. Although the company reported sales and earnings declines for the fourth quarter of 2020 on a year-over-year basis, the results came in better than analysts’ projections. Despite the challenges it faced in 2020, The Children’s Place remains optimistic on its growth strategy for this year and beyond.
Market share dynamics
Looking at the current birth rate trends and the size of the 0-10 kids market, The Children’s Place believes it has opportunities to gain market share. On its quarterly conference call, the company stated that birth rates in the US are estimated to drop to approx. 3.63 million births in 2020 from around 3.75 million in 2019. This number is expected to fall further to around 3.4 million in 2021 and then rise slightly to 3.5 million in 2022 before falling again in 2024. In other words, there is not going to be a baby boom anytime soon.
Since The Children’s Place generates only 5% of its revenue from the newborn or 0-2 category, these birth rates will not impact it in the near-term compared to the other players who have a more concentrated share in this market. 95% of the company’s business comes from the size two and up segment where the competition is more fragmented thereby giving it the opportunity to capture market share from struggling retailers in this space.
The acquisition of the Gymboree brand also provides the company with the opportunity to grow market share in the underpenetrated toddler space which is expected to help offset the impact on sales from the birth rate declines.
Looking at the 0-10 kids market, over the past 10 years, this market has contracted by 18%. Based on NPD data provided by The Children’s Place on its earnings call, the size of this market was $23.5 billion in 2020, reflecting a drop of 11% from 2019. This contraction over the past decade was the result of lower birth rates, liquidations of struggling retailers and more recently the revenue impact from the COVID-19 pandemic.
Although the company expects the pandemic to affect the 0-10 kids market at least through the first half of 2021, it believes as the vaccines are distributed, the market will see a sales recovery in 2022. The retailer was able to offset some of its market share declines in this space through strong performance from its digital channel and it believes that once the pandemic subsides and all its stores are open again, it will be able to grow market share.
In the fourth quarter, the company’s top line results were impacted by store closures, reduced operating hours at mall stores as well as a significant decline in back-to-school demand as schools shifted to remote learning models. These declines were partly offset by higher digital sales. Digital sales rose 38% in Q4, making up 46% of total sales.
In FY2020, digital sales increased 37% and the company added 1.9 million new digital customers. It also converted 1 million of its store-only customers to omnichannel customers and saw its mobile app downloads increase by around 60%.
The Children’s Place saw its digital penetration increase to 53% at the end of 2020 from 31% at the end of 2019. The company said the pandemic accelerated its digital transformation by around five years. The digital channel has contributed meaningfully to operating margins due to its high basket size, low return rates and lower overhead costs. Going forward, the company will focus on scaling its digital business as well as on customer acquisition and retention.
The Children’s Place closed 60 stores in Q4, bringing its total store closures in 2020 to 178. The company is targeting 122 store closures for 2021, with around 25 in Q1, bringing its total closures for the two-year period to its target of 300.
These 300 stores represented around $270 million in store sales in 2019. When factoring in a transfer rate (which measures the success of digital transformation) of 30%, the company expects a sales loss of around $190 million, or less than 10% of 2019 total net sales, while reducing the store fleet by around 30% since 2019. These closures are expected to be accretive to operating profit and margin.
Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!
The virus-related movement restrictions have had a complementary effect on the business of Shopify Inc. (NYSE: SHOP), which was already thriving on the widespread cloud adoption and digital shift. The
There has been a spurt in the number of food and beverages companies going public lately, but many of them failed to perform as expected in the stock market. Fresh
For consumer staples companies, rising inflation is probably turning into a bigger challenge than the virus-induced supply chain disruption and store closures. After bettering its position since the early months